Editor's Note: This is a part of a series of in-depth industry deep dives we are doing leading up to our State of Innovation business conference on Thursday, June 26 from 8 a.m. to 1 p.m. at Arena Stage. Former D.C. Mayor Adrian Fenty will be headlining the event that will feature an exciting line-up of leading professionals in areas including education, healthcare, policy, venture capital and advertising. The business gurus will be featured on panels where they'll be asked about the future of innovation in D.C. Make sure togetyour tickets nowto State of Innovation.
The education landscape in the Washington, D.C., area has evolved far beyond the colleges and universities that call this region their home. Now, forward-thinking students and notable academics are pushing education boundaries in the District, developing tools that could change the face of the traditional brick-and-mortar school model for the better. These edtech innovators are giving the higher education realm a much needed jolt by honing in on key barriers to the academic revolution. Technology is being used to disrupt the industry and companies are finding ways to make a couple of bucks in the process. When I say a couple, I could mean millions if you consider local education companies like 2U, whichraised $100 millionthrough its initial public offering. It's cases like 2U that seem to suggest the D.C. region is one of the top edtech hubs in America.
Tom Davidson, co-founder and CEO of EverFi, the leading edtech company focused on teaching, assessing, badging and certifying students in essential skills, agrees. "DC is the best place in the world to start education companies," he toldMediumin anApril interview. The incredibly versatile mix of policy makers, cutting-edge talent from around the area and funding“from people who know what they’re doing” make the region an ideal place to launch an edtech business and grow exponentially.
Davidson did note that there are issues when it comes to the exit. “My challenge with the DC market isn’t the funding side, but the exit side,” he said. Many edtech companies start up here, but there are only a select few that make the exit. He admitted that the education space in D.C. is "difficult, weird, decentralized, very specialized," but it's worth putting the time and energy into the industry, Davidson said. "We’re trying to make an ungodly amount of money…what better (way) to want people to take a big risk than when they’re trying to help prevent rape or cyberbulling?”
The Edtech Industry Financial Rundown
Investors don't just invest for a good cause by providing the capital for startups like EverFi – it's the idea that the higher education industry is ripe for disruption and the belief that edtech companies will have a profitable impact on the industry that are driving investors to contribute to the market. A quick glance at somePitchBook Blog dataand it's easy to see that the Private Equity investment count has been growing over the years, moving from 69 investments in education companies in 2010 to 89 in 2012. Already 2014 is on pace to match 2012's deal activity, with 29 deals logged through May 6.
As for Venture Capital investment, it too has been growing, but at an even faster pace than PE investment. There were 140 VC financings in education companies in 2012,according to PitchBook, and $739 million of capital invested in 2013 – that's almost 38 percent more than 2012 levels of $538 million. Also worth noting: capital invested in the education industry has increased every single year since 2006.
This investment trend proves promising for 2014, as already in 1Q, VC investors funneled $295 million into education startups. If this pace keeps up, as it should, then a record $1.2 billion would end up funding U.S.-based education startups by the end of the year. And of the five largest education deals in 1Q 2014, two have ties to the D.C. area. Both Parchment and General Assembly have a presence in the District, raising a $45 million Series D round and $35 million Series C round, respectively.
The funding won't stop anytime soon, either.According to Jeff Bussgang and Matt Witheilerof Flybridge Capital, "All the energy and enthusiasm for edtech is translating into dollars [...] As an investor, you never like to see a sector get overfunded. But this one is so large, and has so much room for further disruption, that we feel as if there still remain many exciting new opportunities."
Part of the reason the money will continue to follow edtech trends is because VCs can't afford to ignore them. "Education stories are mainstream. The challenges surrounding student debt, international competitiveness, unemployment and equality are problems that affect everyone, not just those in the education space,"said Andrew D'Souzaof Top Hat Monocle. "If you’re building a company to address these problems in an innovative way, the world wants to know about it and you will get noticed."
This is great news for local edtech growth companies such as myEDmatch, Flat World Education, AlwaysPrepped, 2U, EverFi, LaunchPad and Interfolio. They're appealing to the masses with products that provide better access to information, are mobile market friendly and see the value in unified learning experiences. They're breaking the education mold with their bold businesses geared toward academia, and investors are noticing.
How Universities are Responding to the Edtech Surge
Universities are keeping tabs on these up-and-coming startups, too. Georgetown University, for example, is trying to help the growth of these edtech companies taking over the region. Jeff Reid, founding director of the Georgetown Entrepreneurship Initiative, spoke to that in an interview with InTheCapital last week.
While Georgetown is attempting to lend a helping hand to these small businesses, there are still policies that are preventing the companies from reaching their full potential, threatening their growth, Reid said.
Basically, Reid says, there's so much red tape involved in starting a company that politicians should step in to make it easier for entrepreneurs to do their thing. It's no secret that edtech companies are helping to spur economic growth, so why not help the innovators making progress happen?
D.C. Edtech Startup Stories
Universities aren't the only ones helping to spur edtech sector growth – startups are pulling their own weight. In fact, it's difficult to navigate the edtech scene without stumbling upon multiple success stories here in the D.C. area.
There's of course the monstrosity that is2U, which has beenüber successful in solidifying agreements with nonprofit colleges and universities for their offering of graduate programs online. The fast-growing education company that debuted on the public markets under the ticker symbol "TWOU" partners with top higher education institutions to craft online degree programs, offering the tools ncessary for schools do develop their own curriculum. A hidden gem, 2U has been under the radar for quite some time. That was until about a year ago when the business sought to helpUC Berkeley build a virtual classroomfor its new online data science program.
In anticipation of its IPO, 2U announced a new advisory board that attests to the company's success. From former D.C. mayor Adrian Fenty to Alec Ross, who was the former senior advisor of innovation to Secretary of State Hillary Clinton, 2U's board is stacked with highly influential figures in both politics and education. Considering the VCs profiting from 2U's IPO, too, it's abundantly clear that 2U has some strong backers, including Bessemer Venture Partners, Redpoint Ventures, Novak Biddle Venture Partners, Highland Capital Partners and Triumph Capital.
Then there'sQuad Learning, which is creating more affordable pathways for students to earn their bachelor's degree. The two-year-old company iscollaborating with leading community colleges to jointly create and deliver a competitive 2-year honors program for students who intend on completing the remainder of their bachelor's degree at a competitive school.In a time when mounting student loan debt is approaching $1 trillion, the venture-backed startup could play a key role in college affordability for students of all backgrounds.
It seems as if investors agree, too, as Quad Learning raised a $10 Series B round on April 7, 2014, with MentorTech Ventures, New Enterprise Associates, CNF Investments, SWaN & Legend Venture Partners, ECMC and Comcast Ventures leading the funding.
For one more example of District success, look no further thanInterfolio. A provider of higher education credential management and manufacturer of a strategic decision-making platforms for college and university use, Interfolio is a resource trusted by schools including Johns Hopkins University, Middlebury College and even Stanford University. With 14 years of revenue growth and 10 years of cash-flow positive operations, Interfolio snagged $926.3k in venture backing on May 22, 2013.
Competition Nationwide
While the D.C. region is certainly on the rise when it comes to edtech industry dominance, other cities remain well ahead of the nation's capital.
Boston – which is well regarded as a first-rate hub for higher education – is home to 1,638 startups operating within Boston that have a $3.9 million average valuation and $89k average salary, according toAngelList. Of those Beantown startups, an aggregate of more than 3,000 companies list a founder as an alumnus of the seven Boston schools named toU.S. News and World Report's "National University Rankings" in 2013. That includesedX, a massive open online course (MOOC) provider created through a collaboration between Harvard and MIT. The density of colleges and universities coupled with the health of the education and technology sectors provides for a perfect storm scenario. With a rich talent pipeline and many new graduates flocking to Boston to get a piece of the thriving Boston economy, the Hub is ripe for edtech opportunities.
New York City's a big player in the edtech scene as well. With 5,482 companies at an average $4.2 million valuation and $89k salary, the area's status as one of the most innovative cities in the country rings clear. Some of the most notable education companies in New York City include Pearson, McGraw Hill Education, Scholastic and Knewton. Those are the more traditional, established businesses, though. The startups making a name for themselves in the Big Apple are fledgling companies like Socratic labs, an edtech accelerator embracing lean startup practices. There's also the global learning communitySkillshare, Pinterest clone for educationeduClipperand tech course and workshop provider,General Assembly. For the financial capital of the world with the largest school district in the country, thesuccess of edtech startups in New York Citymakes sense.
You can't leave out San Francisco in this category either. Coursera – the education company that has made headlines for partnering with colleges and organizations worldwide to offer free MOOCs – calls Mountain View, California, home. The thriving startup touts total funding of $85 million, with its most recent Series B round in November of 2013 amounting to $20 million. That's only one example of the edtech startups obtaining such extensive funding for their products. San Francisco Angels are investing in the future of education, and doing so with huge money. It's San Francisco's location that also proves advantageous to young edtech startups dipping their feet in the innovation pool. Silicon Valley may be spread out, but its a hot bed that encourages cutting-edge ideas that may be deemed too extreme or stray too far from the traditional by those from other parts of the country. You can dare to dream in San Francisco, and that's a huge benefit for aspiring edtech founders.
The D.C. region still has a long way to go before it can be the top edtech hub in America, but it's well on its way. There are education companies from big tech centers like New York moving here (i.e.Citelighter,Three Ring), successful education startups launching and then staying here (i.e. Blackboard, 2U) and new education businesses springing up every which way across the area. Full steam head, D.C.
Featured Image via Flickr/Keoni Cabral (CC BY 2.0)
